Canada -The World’s Easiest Place To Beat Investment Professionals?

Canadians have a great, international reputation.

We tend to be polite, easy-going and accepting.  And our financial service industry knows it. 

According to a 2008 study conducted by Ajay Khorana, Henri Servaes, and Peter Tufano (published by Oxford University Press) Canadians pay management expense ratios on actively managed mutual funds that, when coupled with the costs of load fees, amount to an average of 3 percent a year in total costs, estimated over a 5 year period.

Yes, there are Canadians who still pay load fees (sales commissions to buy funds) and redemption fees to withdraw.  Our greatest strength–our easy-going affability–becomes our greatest weakness when we accept investment costs that would have many other country residents shuddering in repulsion. 

But how does this affect you, fellow Canadian?

In an investment climate such as ours, beating the investment professionals at their own game couldn’t be easier.  You can spend less than an hour a year following your investments; you never have to read the financial news; you never have to watch investment based television;  and you can crush the investment returns of the folks who make their living by investing money for good, honest, unaware Canadians.

Back in 2008, I told my friend, Harry, the very same thing:

He was a retiree with $288,000 invested in actively managed Canadian mutual funds.

“Listen Harry,” I said, “If you create a balanced account of index funds, you’ll beat the vast majority of Canadian pros, without any trouble at all.”

So he took me up on it, opening a brokerage account with QTrade and building a portfolio of indexes, through a series of exchange traded funds.

Harry didn’t want to do any work.  He just wanted to diversify his account across the U.S. stock market, the Canadian stock market, the International stock market and the Canadian bond market.

Now, let’s be honest.  August 2008 to August 2011 resulted in some pretty poor stock market returns.  We had the biggest stock market decline in many years to deal with, so it’s not likely that anyone “knocked the lights out” during this volatile period.

To make matters worse, Harry even withdrew some of his money.  He was working on an airplane at the time, and his costs were running higher than he expected.  From 2008 to 2011, he withdrew roughly $83,000 from his account.  And he didn’t always do it during opportune times (like when the markets had enjoyed a good run).  Sometimes, he took money out when the markets were down.

Harry might not have a financial education, but he isn’t stupid.  When the markets were low, and he needed money, he didn’t give in to his emotions and sell his stock indexes.  Instead, when stock markets were low, Harry sold his bonds to pay for his airplane’s costs.

On one occasion, in 2009, he even rebalanced some of his portfolio, selling some of his bond index to switch some of the money to his stock indexes.

I told Harry that he would beat the pants off most of Canada’s investment professionals—mostly because of the high costs associated with Canada’s mutual funds.

From the time Harry opened his account (August, 2008) to the beginning of August, 2011, how did Canada’s actively managed mutual funds perform?

Because Harry has a balanced account with stocks and bonds (roughly 50% of his portfolio is in bonds) we can look at what the balanced mutual funds at Canada’s big five banks would have earned during this three year period.

Keep in mind that these funds charge very high investment fees; however, they are run by professionals who can rebalance their funds’ holdings, while trying to take advantage of economic climates.  Every day, these funds have trained professionals who arrive at work, ready to research stocks and bonds, while doing the very best they can for their investors.

Let’s see how well they performed, from August 2008 to August 2009:

0.02%:  RBC Balanced Fund  

+7.09%:  CIBC Balanced Fund

-0.15%:  Scotia Canadian Balanced Fund

-0.06%TD Balanced Growth Fund

-2.22%:  Bank of Montreal NB Balanced Fund

Oh my….those results aren’t very good.

Let’s see how Harry did, with his exchange traded funds:

Harry’s account grew by 14.7% during the same time period. You can see his account’s annual results below:

Yearly Performance


Market Value

Net Invested














2011 (YTD)




Note that Harry removed money from his account every year. During falling markets, this would normally be a recipe for disaster. As you can see on the above table, he had $288,651.99 invested in August 2008 (when he opened the account) but he withdrew exactly $20,000, sometime between 2008 and 2009, to pay for his airplane’s costs.

By looking at the “Net Invested” column, you can see the money that he was removing from his account.

But Harry never sold stock indexes when they were falling.

How much time did Harry spend on his investments? Less than one hour a year.

His current holdings are below.





Current Price

Market Value

% Holdings




























































No, you might not think that his portfolio is “perfect.” That isn’t the point.

The point I’m making is that the account is diversified, cheap, and Harry wasn’t foolish enough to sell stocks when they were low.

Harry’s withdraw rate, of course, isn’t sustainable. If he keeps removing money from his account, he’ll soon run out. But he doesn’t care. His wife has a pension, and as I type this, Harry is flying the skies above Mission, British Columbia, in his own airplane.

To conclude….

If Canadians continue to accept high cost investment products, Canada will likely earn an interesting distinction: as the easiest place in the world to beat investment professionals.

For more information on how Canadians can buy index funds and ETFs, check out my book, Millionaire Teacher, which you can pre-order here: 




Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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12 Responses

  1. The Dividend Ninja says:

    Hey Andrew,

    By coincidence I am working on the start of an article on Canadian Mutual Fund fees and returns veruses low cost index funds (such as TD e-series). My first set of data, without being biased – just taking the Top-10 Canadian Equity Mutual Funds each year, were simply mind-blowing.

    About a 3% to 6% underperformance of these mutual funds, as compared to the Canadian Index e-series, which just tracks the TSX. That doesn't even include the MER (Management Expense Ratio) or Trailer Fees, another 2.5% on average combined. (According to a Globe and Mail article by Rob Carrick, The average Canadian equity mutual fund has an annual MER of 2.43%)

    So that essentially means by buying the averge Canadian equity mutual fund, you are losing 5% minimum per year rigtht off the bat, and never mind any commissions or advisor's fees on top of that. Scary eh?

    btw the MER for TD Canadian e-series is only 0.32%, and ishares XIU MER is only 0.17%. I'm really looking forward to getting this post out sooner than later 😉


    The Dividned Ninja

    • I'm looking forward to reading your post Ninja!

      The expense ratios, of course, are already included in the performance of the funds. So if a fund manages to equal the performance of the index, it means that it would have beaten the index, before fees, by the exact percentage of its management expense ratio.

      It's crazy what many people will pay, isn't it? Don't forget to get into sales fees and back end loads when writing that article. There are plenty of those creepy products still lurking about in Canadian portfolios.

      Looking forward to reading your post!!!

  2. What little I know of Canadian investing, the fees seem extraordinarily high. Is Vanguard up north yet, or do they have plans to head there?

  3. squasher55 says:

    Hey Andrew,

    I have your book on order, but it will not be here until Sept. I am also a Canadian teacher (mathematics), but now retired and living in the USA. So my portfolio needs might be diff than others. But I have 2 questions.

    1. What online trading brokerage do you use? Or perhaps just recommend a couple.

    2. Based on the above article…which I agree with totally…my wife has RRSP accounts with a professional back in Canada…and not doing well over many years. Now we know why. Even though these are potentially locked in until she is 59, can we remove that money and somehow manage it ourselves within the RRSP definition?

    • Hey Squasher,

      Thanks for the interest in my book.

      As a U.S. resident, you should be able to open an account with Vanguard: and buy something like the Vanguard Target Retirement 2005 fund. This would give you a combination of low cost indexes, with a reasonably large bond component.

      As for your wife's money, she can definitely move it to another institution. She could switch it to TD Bank's eSeries index funds, for instance, following a format that I set up in my book.

      But you'll need to keep this in mind: TD bank does offer the eSeries index funds, but from my experience (when dealing with TD) they would far rather have you buy more expensive products. So stand your ground.

      As long as you switch your wife's account from one RRSP account to another RRSP account, the switch won't cost any penalties (unless she owns funds with back-end loads). If she owns those kinds of products, then she has a very self-serving advisor indeed. Regardless, it would still be worth the switch.

      Thanks for stopping by!

  4. Thanks Nu2This:

    Vanguard is offering six ETFs to trade on the Toronto stock market, which is a good thing, but they aren't offering their full indexing services to Canadians, the way they do in the U.S., the UK, or Australia. I'm baffled by their absence. But with luck, they'll eventually take a step into Canada.

  5. Great post Andrew.

    Man, are you ever drilling home the point! 🙂

    I can't wait to read your book!

    I can't believe it took me 10 years of my investing career to figure out how much expense ratios gouge me. It's not in the good times you really feel the pain, it's in the down times.

    It’s crazy or uninformed, what people will pay.

    @Ninja, I can't wait to read your post!

    • Mark,

      Thanks, as always, for your amazing support.

      As Larry Swedroe says, those who are educating people about money (and the detriment of costs) are fighting on the side of the angels.

      If you ask my mom, she'll tell you that she didn't raise an angel. But we're doing our part, right?

  6. The Dividend Ninja says:

    Yes Andrew, that's correct. The expense ratios, are already included in the performance of the funds. But it still cuts your return down by 2.5%+, and sector funds are over 3% MER's. Of course that doesn't inlcude any fees or commissions from financial advisors or mutual fund companies, and you and I know all about that. Unfortunately many Canadians still don't get it, they are getting hosed 🙁


    The Dividend Ninja

  7. It's true what they say about the nobility of Ninjas.

    OK–I'm not really sure if Ninjas are noble, but you are.

    You own bank stocks, and you're encouraging people not to buy actively managed funds (most of which, in Canada, are supplied by Canadian banks)

    That's like the owner of a McDonalds telling people not to buy the Big Mac.

    Serious nobility Ninja! No McDonalds owner would do that. You rock!

    If you were a pure pure capitalist, you would keep quiet. Hats off to the Ninja!!

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